Consumer Bankruptcy Journal Spring 2016 | Page 18

Illegality of Marijuana Growing Prohibits Bankruptcy Plan Confirmation By Robert C. Meyer http://robertcmeyer.com/ A lthough only four cases have been published on this specific issue,1 it is clear that proceeds from legal (legal under state law) marijuana production cannot be the primary source of income for a chapter 11 or chapter 13 plan pursuant to respective provisions of the bankruptcy reorganization chapters.2 And, the prohibitions by those chapters led one court to enjoin a debtor from: growing marijuana; using his home as the growing house for the marijuana; using a truck to transport marijuana; and, buying or using fertilizer or other horticultural devices for marijuana production. That court harshened the injunction by compelling the destruction of the existing marijuana plants while the debtor remained under the protection of the bankruptcy laws.3 This article will review how the state law legalities for growing marijuana are not deemed legal by the federal bankruptcy courts; and, because of such, marijuana growing 18 CONSUMER BANKRUPTCY JOURNAL revenues cannot be a source for reorganization revenue in bankruptcy. will be outlined below showing how the courts have interpreted the same with unanimous disapproval. Effective Bankruptcy Clauses The concerns being addressed by either chapter 11 or chapter 13 are respectively derived under § 1129(a) (3)4 and 11 U.S.C. §1325(a)(3)5 which have the following identical clause, “. . . the plan has been proposed in good faith and not by any means forbidden by law . . .” The issues being addressed focus upon the terms “bad faith” and “forbidden by law.” Although the states may license, authorize and permit the growing, selling and distribution of marijuana, federal law still prohibits the growing of cannabis.6 This dichotomy of the laws (state versus federal) creates the rub. Numerous arguments attacked the “good faith/not forbidden” clause and attempted to permit confirmation of a plan. Those various arguments Spring 2016 What Law Is Being Violated? It is undeniable that the Controlled Substances Act (“CSA”)7 is broad in its reading which prohibits growth of the very broadly defined term for marijuana: ‘Marijuana’ or ‘Marihuana’ means all part of the plant of the genus cannabis whether growing or not, the seeds thereof, the resin extracted from any part of the plant, and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Including the marijuana this time with age concentrate. The CSA prohibits the growing of most any product derived from marijuana. The CSA is the violated law. Issues arose when a wave of state National Association of Consumer Bankruptcy Attorneys